Purchasing a Newly Constructed Home

An agreement of purchase and sale for a newly constructed home (also known as a “Builder Agreement”) is often quite voluminous; however, this should not discourage you from reviewing each paragraph and provision to ensure that you are fully aware and comfortable with its contents.

Please note that we strongly recommend contacting your lawyer before signing any agreement of purchase and sale to ensure that you completely understand the agreement’s terms. If you are signing the agreement before having it reviewed by your lawyer, it is essential to include a condition for solicitor review of the agreement. Please note that the review of such an agreement is in addition to our legal fees and disbursements. The fee for this service starts at $200.00 + H.S.T.

Harmonized Sales Tax

Usually, the builder agreement provides that the H.S.T. is included in the purchase price and the H.S.T. new housing rebates.

In addition, the agreement will provide a certification that you qualify for the H.S.T. rebate (i.e., you or an immediate relative will live in the unit and that this residency will be real and bona fide.)

If this is not the case, and if you intend to rent it out, you may qualify for the rental residential rebate, which is the same as the builder rebate, but you will pay it on closing and apply to the Canada Revenue Agency to receive it after closing. If you have intended to purchase the property for investment rather than personal use, please advise us and the builder immediately.

Covenants, Restrictions, and Acknowledgments

A builder agreement will also contain a schedule relating to “Covenants, Restrictions, and Acknowledgments,” which should be carefully reviewed as it contains restrictions on the use of the property and facts you acknowledge when purchasing the property.

A restrictive covenant is a contract in which a party agrees to be restricted regarding future conduct. Restrictive covenants also give a development a more standard appearance, and they control some of the activities that take place within its boundaries. When enforced, covenants protect property values.

For example, a common covenant or restriction relates to interference with drainage. Usually, all builder agreements contain a paragraph that provides that the buyer shall not alter the slope of the subject property nor interfere with any drains contained thereon. This is, of course, partly to prevent owners from flooding their neighbours’ properties. Finally, there are usually provisions relating to easements/rights-of-ways, which we discuss below.

On the other hand, an acknowledgment relates to the condition at the property that you are aware of and will hold the builder harmless for. For instance, most residences in new developments do not have the mail delivered to the door but rather to community mailboxes. It is a common feature of the schedule to contain a paragraph wherein the buyer acknowledges that the postal services may be delivered through community mailboxes instead of the door.

Tarion Warranty

Tarion is a private corporation established in 1976 and is responsible for administering the Ontario New Home Warranties Plan Act, R.S.O. 1990, c.O.31 (as amended). This Act outlines the warranty protection that new home and condominium builders must provide, by law, to their customers.

The Tarion website provides helpful information for buyers of newly constructed homes. In particular, they provide a calculation table for the Tarion Enrolment Fee and a directory of licensed builders, including information on whether claims have been made against them under Tarion.

Variations

Builder agreements usually provide for minor variations or deviations from the plans and substituting materials for different materials as long as the materials are of quality equal or better than those specified in the plans. These changes can usually be made without notice or compensation. You should read the clauses relating to variations, extras/options/colours attentively and ensure you fully understand their effect.

Easements and Rights-of-Way

The most common easements (rights-of-way) relate to maintenance, utilities, and access. Easements are registered on the title of the property and, as such, are binding on each owner.

Generally, a maintenance easement allows for each owner’s property’s maintenance (upkeep). In cases where homes are constructed on small lots, these easements permit owners to pass over adjoining lands for cleaning, painting, repairing, replacing, and otherwise maintaining their building. On the other hand, a utility easement allows utility companies to install and maintain wiring, pipes, and cables. Finally, an access easement usually applies in townhouses or row house units where the title to the property is subject to a right of way along the property’s back and/or side of the property, affording access to other unit owners. In such cases, each owner is prevented from obstructing the access of the other by way of constructing a structure or planting a hedge.